Difference between Digital Bank Loan Service and Online Loan Service

PERTANYAAN

Not long ago, some digital banks were planning to create lending services directly through their platforms. My questions:

1. What is the lending scheme in digital banks and what are the regulations?
2. What is the difference between digital bank loans and other legal online loans (such as P2P lending)?
3. What about the loan for foreigners in Indonesia? Can foreigners become bank debtors in Indonesia?

INTISARI JAWABAN

Online loan services offered by digital banks have the same scheme as loans offered by commercial banks. Thus, digital bank lending services are subject to the provisions of banking laws and regulations. Meanwhile, the difference between bank credit and P2P lending lies in the origin of funds, and the organizing institution.

Please read the review below for a further explanation.

ULASAN LENGKAP

This article is an English translation of Perbedaan Layanan Pinjaman Bank Digital dengan Pinjol, written by Renata Christha Auli, S.H. and was published on Tuesday, 12 September, 2023.

This article is an update with the same title and was first written by Aisha Adelia, S.H. , and published on Thursday, 18 August 2022.

All legal information available on Klinik hukumonline.com has been prepared for educational purposes only and is general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.

Loan Services by Digital Banks

Before discussing the loan services offered by digital banks, we need to know how digital banks are regulated, and what distinguishes digital banks from banks in general.

Digital Banks are Banks Incorporated in Indonesian Legal Entities (Bank Berbadan Hukum Indonesia, from this point onward is referred to as BHI Banks) that provide and carry out business activities mainly through electronic channels without a physical office other than headquarters or that use limited physical offices.[1]

The characteristics that can be inferred from the definition are that digital banks provide and conduct their business activities:

1. mostly through electronic channels; and
2. does not use physical offices other than the head office, or uses limited physical offices.

Then, BHI Bank operating as a digital bank must fulfill the following requirements:[2]

1. have a business model with the use of innovative and safe technology to serve customers’ needs;
2. have the ability to manage a prudent and sustainable digital banking business model;
3. have adequate risk management;
4. fulfill the governance aspect, including the fulfillment of the Boards of Directors that has competency in the field of information technology and other competencies in accordance with provisions of the Financial Services Authority (Otoritas Jasa Keuangan/”OJK”) on fit and proper tests for primary parties of financial service institutions;
5. implement protection of customer data security; and
6. provide efforts that contribute to the development of a digital financial ecosystem and/or financial inclusion.

The above requirements tend to focus on the use of information technology as the medium for operating a digital bank. In other words, these requirements are additional requirements for commercial banks (in Bahasa Indonesia is known as Bank Umum) that want to operate as digital banks, with the aim of accommodating the use of information technology. Then for information, quoted from the OJK website on the Summary of Commercial Banks POJK, the regulations in the Commercial Banks POJK apply to conventional commercial banks, one of which is BHI Banks.

In general, there are no fundamental differences between digital banks and commercial banks, especially regarding the products or services offered. Article 30 Commercial Banks POJK also stipulates that:

BHI Banks that operate as Digital Banks must comply with provisions of laws and regulations that are applicable to BHI Banks.

From the above, it can be concluded that the difference between digital banks and commercial banks is in the institutional structure, not the business activities or products offered.

Also read: Get to Know Digital Banks in Indonesia and its Establishment Requirements

However, to answer your question regarding loan services offered by digital banks, we will refer to the provisions regarding loan services by commercial banks. Here is the review.

Definition and Legal Basis of Credit

In Article 14 number 1 Law 4/2023, loan services are referred to as credit, which has the following definition:

Credit is the provision of funds or billing equivalent to it, based on a loan approval or an agreement between a Bank and other parties which require the borrower to settle their debts after a certain period of time with by charging interest.

Based on the above definition, credit is a lending or borrowing service, with the bank as the creditor and the customer as the debtor.

Credit is also the main business activity of banks, as explained in the definition of a bank, namely a business entity that collects funds from the public in the form of savings and distributes it to the public in the form of credits and or other forms within the framework of improving the living standard of the public at large.[3]

Thus, in our opinion, the loan services offered by digital banks actually take the form of credit, which has been offered by commercial banks. Then, there is no difference between the two, except that the loan services offered by digital banks are conducted online.

Loan Services by P2P Lending

So, what is the difference between digital bank loan services and online lending (in Bahasa Indonesia is known as pinjaman online/ "pinjol") or peer-to-peer ("P2P") lending? To facilitate further explanation as well as to answer your second question, we provide the following table of differences.

No.	Aspects of Difference	Digital Bank Credit	Online Loan/P2P Lending Credit
1	Legal Basis	Regulated in the Banking Law and its amendments.	Regulated in POJK 10/5/2022.
2	Funding	Provides credit from the funds deposited by the public.	Does not hold funds in LPBBTI transactions.
3	Organizer/Institution	Digital banks are commercial banks subject to the provisions of banking laws and regulations.	Other financial service institutions, such as mortgage pawnshops, guarantee institutions, etc.

P2P lending services are regulated under POJK 10/5/2022. Information Technology-Based Co-Funding Services (Layanan Pendanaan Bersama Berbasis Teknologi Informasi/ “LPBBTI”), is the provision of financial services to bring together funders and fund recipients in conducting conventional funding or based on sharia principles
directly through an electronic system by using the internet.[4]

Furthermore, LPBBTI is offered by LPBBTI organizers, namely an Indonesian legal entity that provides, manages, and operates LPBBTI either conventionally or based on sharia principles.[5]

In this case, the LPBBTI organizer only functions as an intermediary between funders and fund recipients, and provides a platform for them to conduct funding transactions, which has the following definition:[6]

Funding is the distribution of funds from funders to fund recipients with a promise that it will be paid or returned according to a certain period of time in an LPBBTI transaction.

Unlike banks that provide credit from funds deposited by the public, LPBBTI organizers such as online loans do not have funds in LPBBTI transactions. Because basically, funds are obtained from funders, besides that LPBBTI organizers can only collect funds for 2 working days in an escrow account, before channeling funds to fund recipients.[7] These funds are not the assets of the organizers as well.[8] For your information, an escrow account is a checking account at a bank on behalf of an organizer that is entrusted and used for a specific purpose, namely receiving and disbursing funds from and to users.[9]

Also read: Illegal Online Loans (Pinjol) Don't Have to Be Paid, Is it True?

Furthermore, institutionally, banks and LPBBTI organizers are different. LPBBTI organizers are included as financial service institutions, such as mortgages, guarantee institutions, Indonesian export financing agencies, etc.[10] Meanwhile, as explained, digital banks are commercial banks, which are subject to the provisions of banking laws and regulations.

Thus, it can be concluded that online loan services offered by digital banks have the same scheme as loans offered by banks in general. Therefore, these services are subject to the provisions of banking laws and regulations.

Meanwhile, P2P lending services are offered by LPBBTI organizers, which function as intermediaries between funders and fund recipients. The funds come from the funders, and LPBBTI organizers only help channel the funds to the fund recipients. Institutionally, LPBBTI organizers are other financial service institutions, not banks.

Also read: Let's Understand the Legal Development and Practice of P2P Lending Services in Indonesia

Regulations for Lending to Non-Residents

To answer your last question, we assume that the foreigner you are referring to is non-residents, which are individuals, legal entities, or other entities, which are not domiciled in Indonesia or plan to be domiciled in Indonesia for less than 1 year, including the representatives and diplomatic staffs of other countries in Indonesia.[11]

Moreover, according to Article 17 section (1) letter d Regulation of BI 24/7/2022, banks are prohibited from engaging in transaction such as providing overdrafts as well as credit and/or financing in rupiah or foreign currencies to non-residents. However, the prohibition shall be exempted for granting of credit or financing to non-residents with the requirements of certain economic activities in Indonesia, as stipulated in Article 17 section (2) letter c Regulation of BI 24/7/2022. A more detailed explanation can be read in the article Can Foreigners Become Bank Debtors in Indonesia?

Also read: Legal Risks of Failure to Pay Online Loans that You Must Know

Enrich your legal research with the latest bilingual legal analysis, as well as the collection of regulatory translations integrated into Hukumonline Pro, click here to learn more.

These are the answers we can provide, we hope you will find them useful.

Legal Basis:

1. Law Number 7 of 1992 on Banking as amended by Law Number 10 of 1998 on the Amendment to Law Number 7 of 1992 on Banking;
2. Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector;
3. Regulation of the Financial Services Authority Number 12/POJK.03/2021 of 2021 on Commercial Banks;
4. Regulation of the Financial Services Authority Number 10/POJK.05/2022 of 2022 on Information Technology-Based Co-Funding Services;
5. Regulation of Bank Indonesia Number 24/7/PBI/2022 of 2022 on Transactions in the Foreign Exchange Market.

Reference:

The Financial Services Authority, Summary of Commercial Banks POJK, accessed on Tuesday, 12 September 2023, at 15.10 Western Indonesian Time (zone).

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[1] Article 1 number 22 Regulation of the Financial Services Authority Number 12/POJK.03/2021 of 2021 on Commercial Banks (“Commercial Banks POJK”).

[2] Article 24 section (1) Commercial Banks POJK.

[3] Article 14 number 1 Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector which amended Article 1 number 2 Law Number 7 of 1992 on Banking.

[4] Article 1 number 1 Regulation of the Financial Services Authority Number 10/POJK.05/2022 of 2022 on Information Technology-Based Co-Funding Services (“POJK 10/5/2022”).

[5] Article 1 number 8 POJK 10/5/2022.

[6] Article 1 number 3 POJK 10/5/2022.

[7] Article 36 section (5) POJK 10/5/2022.

[8] Article 36 section (8) POJK 10/5/2022.

[9] Article 1 number 27 POJK 10/5/2022.

[10] Article 1 number 2 POJK 10/5/2022.

[11] Article 1 number 3 Regulation of Bank Indonesia Number 24/7/PBI/2022 of 2022 on Transactions in the Foreign Exchange Market.